Your Honour – it’s $50 in gold

If your government created a gold coin (which they make legal tender) and the face value of the coin says $50, then if you pay your workers with this coin how much tax is due? Who cares you might ask. Well it’s an interesting account of incentives.

Incentive 1.

Why would a government issue a gold coin with a face value of $50 but a gold content value well above that amount? Simple. They want to profit by selling it at the market value of the gold, or in fact above the market value of the gold because once minted it is collectable and worth more. However they don’t want it to circulate as currency otherwise they would give it a higher face value. As detailed previously legal tender gold coins only circulate when face value exceeds gold value.

Incentive 2.

The tax dodge. Say the $50 coin has gold in it with a market value of $100. Now if you pay your workers $50, in gold coin, instead of say $100 in paper currency then they are liable for taxes on $50 not $100. After all it’s legal tender. And you can get more labour for the same cost because the workers now have a tax advantage. Cool!! It’s simply arbitraging.

Incentive 3.

The sting. Well governments don’t like people who are clever dicks. So they want Robert Kahre to go to jail becaue over six years he paid out $114 million in payroll using precisely this scheme.

Can the government have it both ways? Can a coin be legal tender, but at the same time be prohibited for paying debts? History suggests that when it comes to the law the government can ultimately do whatever the heck it pleases. However it should be fun to follow this case and see where it leads.

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10 thoughts on “Your Honour – it’s $50 in gold”

Another way around any taxes is to bet each worker that they can’t work a full day, and their ‘wages’ are actually wagers. Private betting is still allowed. (I haven’t tried this, but the argument sounds good. Can any lawyer help us out on this?)

I remember seeing this come up with the Liberty Dollar. Since it wasn’t USD but had its own value which was usually higher than the weight of the silver/gold. If you were an affiliate you could buy them for less. I believe the 1 oz. medallion (the language was very big on avoid calling them coins at all cost) was labeled $20, the value of the silver was worth anywhere from $12-$16 most of the time and if you were an affiliate you could purchase them for a discount. I am not sure how much the discount was, affiliates were likely purchasing them for $17 per 1oz. Shops who would accept them would generally accept them for 1:1 to the USD.

You could buy them at $17. Pay people with them at $20. And they could claim the value of the silver was only worth $13 or so but spent it like $20.

All Sorts of interesting things can come up. Such as, if a customer uses one to buy a $20 item, could you claim that you sold it for only $15 (the value of the silver) and took a loss yet then go and spend that as if it was actually $20?

Nicholas – not a lawyer, but did a course in tax law this semester and there are a number of reasons why such a scheme wouldn’t work.

Firstly, courts look at the substance of an operation, not the form – so ‘saying’ that you are wagering will not stack up if the underlying effect is the same as paying them a wage.

Secondly, gambling wins are not taxed only if the betting is a hobby, as opposed to a business operation. Again, you can’t ‘say’ it’s a hobby, the court is going to look at a number of criteria eg size of operations, existance of a profit motive, system/organisation, commercial nature, etc.

There have been a few cases where the tax commissioner has won against horse punters, because where there was an underlying system that the risk taking was based upon.

So the best idea would be to never tell the taxman! Of course, the government might find out, so I wonder if a smart libertarian could establish a Retrospective Betting Office- one that gives you the winning ticket after a publicised race, as a way of ‘explaining’ your winnings? I often bet, and lose, on the Melbourne Cup- but, with the right forged documents, I could make it appear I actually won something, to explain any earnings from undeclared work.

People are getting close to an old trick for laundering money (in this case, undeclared income). You do some work for declared income (more broadly, you have other legitimate money). Then you bet on all the horses, in such a way that you will always get a proportion of the money back (less the bookies’ cut, of course). Then you throw away the losing betting slips, declare your winnings and claim the bets were made off the legitimate money. An analogue of this used to happen a lot in Hollywood, where the books were presented to connect the hit films with the legitimate money and the rest sank without trace or were continually rolled over into other projects or whatever.

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